USNews & World Report  —  Thomas Jefferson Street Blog 4/24/2012

Often Overlooked: For-Profit Colleges Ripping Off Taxpayers

April 24, 2012

President Obama is focusing this week on making college more affordable, ensuring a strong college loan program, and improving access for future generations. His concern is private colleges, community colleges, and state schools.

In the midst of this debate there is one area often overlooked—private, for-profit colleges.

Increasingly, a large percentage of taxpayer dollars for education is going to these for-profit schools. In 2009, $4 billion came from Pell grants and $20 billion in student loans from the Department of Education and the G.I. Bill.

A recent Senate report on the 15 largest publicly traded for-profit colleges indicated that they got 86 percent of their revenue from taxpayers. Of that revenue, $3.7 billion was spent on marketing and recruiting, roughly 23 percent of the operating costs (most colleges don’t reach 5 percent). So, the next time you see one of those ads from the University of Phoenix or Strayer University, you’re paying for them!

Advertising Age reported that the University of Phoenix alone spent $377 million in ads in 2009, more than even Apple spent.

So what about the students? For-profit colleges spend less than one third of what public colleges and universities spend on instruction and the students. They spend less than one fifth of what private colleges and universities spend. Something is not working.

[Read: Students at For-Profit Colleges Earn Less, Study Says]

Furthermore, the latest figures from the Department of Education indicate that the default rate on federal loans to the for-profits is twice what it is for public colleges and universities, and about three times for the privates. Sadly, according to the Senate report, of students enrolling in the largest for-profits, 2 million withdrew and of those who came in 2008-2009, 54 percent had left by 2010.

Not enough money is going to educate students, too much to the slick ads, and over $2 billion to inflated salaries and profits to the top executives at the leading 15 for-profit colleges.

We need to get a handle on making these schools more accountable, especially in an age of long distance learning and classes over the Internet.